The British government will review the powers of its regulators within two years of Brexit, it said, as the Financial Conduct Authority set out plans to cope with a no-deal Brexit.
John Glen, economic secretary to the Treasury, told a House of Lords committee examining Britain's Brexit plans that there was no major policy innovation planned because of Brexit.
"We've done what's logical, what's necessary and what's required to give us the functioning framework come what may at the end of March next year," the member of Parliament said Oct. 10.
Glen said it would be decided after Brexit whether regulators would be given more powers. The Treasury, the Bank of England and the FCA would work together after Brexit in a way that prizes competitiveness, he said, while the balance of powers across these different bodies will be reviewed by the government in the next two years.
"We have a global, thriving public good that is the City of London and we will do whatever's required to protect it," he said.
The FCA is making no big policy changes beyond what is required to provide a smooth Brexit in the event of there being no withdrawal agreement.
When the U.K. leaves the bloc on March 29, 2019, EU financial regulations will be transposed wholesale into the U.K.'s own rule book, with British regulators taking over duties currently held by their equivalent EU bodies.
The FCA also published two consultation papers about Brexit, with the first covering its plans to convert directly applicable European law into British law at the point of exit. Parliament has already passed the European Union Withdrawal Act, which will convert existing EU law into U.K. law at the point of exit and provide the government with powers to amend that law so it functions effectively after Brexit. This means that recent European rules such as MiFID II will become part of British law.
The U.K. regulator said it is prepared to use powers granted to it by the Treasury to "waive or modify some requirements to allow for a smooth transition to the post-exit regulatory regime." This, said the FCA, means it does not expect firms to prepare now to implement any changes to the regulatory regime on exit day. The regulator's powers are limited to dealing with any failure of U.K. law to operate effectively post-Brexit.
The second paper published by the FCA concerns its plans to allow financial firms currently operating in the U.K. under passporting rules — which allow firms regulated by one EU state to operate across the bloc — to continue for at least three years while they apply for full U.K. authorization. It is inviting responses to its proposals by December.
The loss of passporting rights after Brexit has led to fears in the U.K. that banks and financial services firms might be forced to quit London and open offices in continental Europe.
European regulators have so far not followed the U.K.'s approach and have not said U.K.-licensed firms would be allowed to continue to do business with clients in the EU via a temporary passport regime after Brexit. Glen, however, said EU-based businesses and consumers are highly reliant on access to London's capital markets, and this would encourage the EU to reach an agreement with the U.K.
On its proposals to allow financial firms to continue to operate in the U.K. after Brexit, the FCA said: "[T]he FCA's aim is to preserve existing arrangements as far as possible for both firms and consumers. In some cases, firms may be required to join additional schemes run by U.K. institutions to protect U.K. consumers, like the Financial Services Compensation Scheme."
The FCA is also taking over supervision of credit rating agencies and trade repositories from European agencies such as the European Securities and Markets Authority, which will no longer have jurisdiction over British companies.